Christian Care Ministry, Inc. Financial Statements

Transcription

1 Christian Care Ministry, Inc. Financial Statements For The Years Ended June 30, 2017 And 2016

2 REPORT OF INDEPENDENT AUDITOR The Board of Directors Christian Care Ministry, Inc. Melbourne, Florida We have audited the accompanying financial statements of Christian Care Ministry, Inc. ( the Ministry ), which comprise the statements of financial position as of June 30, 2017 and 2016, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Ministry's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Ministry's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Christian Care Ministry, Inc. as of June 30, 2017 and 2016, the changes in its net assets, and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. B ATTS M ORRISON W ALES & L EE, P.A. Orlando, Florida October 23, 2017

3 STATEMENTS OF FINANCIAL POSITION ASSETS June 30, ASSETS Cash and cash equivalents $ 15,496,796 $ 14,476,880 Certificate of deposit 5,037,688 5,014,373 Investments 10,711,765 Other assets 1,151, ,347 Property and equipment, net 9,944,385 8,585,344 Total assets $ 42,341,840 $ 28,855,944 LIABILITIES AND UNRESTRICTED NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 4,260,322 $ 3,165,685 Note payable 3,318,136 Interest rate swap contract, at estimated fair value 460,800 Total liabilities 4,260,322 6,944,621 UNRESTRICTED NET ASSETS 38,081,518 21,911,323 Total liabilities and unrestricted net assets $ 42,341,840 $ 28,855,944 The Accompanying Notes are an Integral Part of These Financial Statements 1

4 STATEMENTS OF ACTIVITIES For The Years Ended June 30, PUBLIC SUPPORT AND REVENUE Program fees $ 87,884,026 $ 59,365,711 Extra Blessings 2,378,715 2,138,492 Total public support and revenue 90,262,741 61,504,203 EXPENSES Program activities 66,936,970 44,012,346 General and administrative 7,152,168 4,112,945 Total expenses 74,089,138 48,125,291 CHANGE IN UNRESTRICTED NET ASSETS BEFORE CHANGE IN ESTIMATED FAIR VALUE OF INTEREST RATE SWAP CONTRACT 16,173,603 13,378,912 Change in estimated fair value of interest rate swap contract (3,408) (150,155) CHANGE IN UNRESTRICTED NET ASSETS 16,170,195 13,228,757 UNRESTRICTED NET ASSETS - Beginning of year 21,911,323 8,682,566 UNRESTRICTED NET ASSETS - End of year $ 38,081,518 $ 21,911,323 The Accompanying Notes are an Integral Part of These Financial Statements 2

5 STATEMENTS OF CASH FLOWS For The Years Ended June 30, OPERATING CASH FLOWS Cash received from program fees $ 87,884,026 $ 59,365,711 Cash received from other sources 2,378,715 2,138,492 Cash paid for operating activities and costs (72,613,901) (48,578,454) Cash paid to terminate interest rate swap agreement (464,208) Net operating cash flows 17,184,632 12,925,749 INVESTING CASH FLOWS Net purchases of certificate of deposit (23,315) (5,014,373) Net purchases of investments (10,711,765) Purchases of and improvements to property and equipment (2,111,500) (2,465,375) Net investing cash flows (12,846,580) (7,479,748) FINANCING CASH FLOWS Principal repayments (3,318,136) (157,600) Net financing cash flows (3,318,136) (157,600) NET CHANGE IN CASH AND CASH EQUIVALENTS 1,019,916 5,288,401 CASH AND CASH EQUIVALENTS - Beginning of year 14,476,880 9,188,479 CASH AND CASH EQUIVALENTS - End of year $ 15,496,796 $ 14,476,880 RECONCILIATION OF CHANGE IN UNRESTRICTED NET ASSETS TO NET OPERATING CASH FLOWS Change in unrestricted net assets $ 16,170,195 $ 13,228,757 Adjustments to reconcile change in unrestricted net assets to net operating cash flows Depreciation 752, ,679 Cash paid to terminate interest rate swap agreement (464,208) Change in other assets (371,859) (301,033) Change in accounts payable and accrued expenses 1,094, ,877 Change in estimated fair value of interest rate swap contract 3, ,155 Change in other liabilities (882,686) Net operating cash flows $ 17,184,632 $ 12,925,749 The Accompanying Notes are an Integral Part of These Financial Statements 3

6 NOTE A NATURE OF ACTIVITIES Christian Care Ministry, Inc. ( the Ministry ) is a Florida not-for-profit corporation. The Ministry was established to offer a formalized approach to sharing medical burdens among members. The Ministry currently offers the following programs to serve the Christian community: Medi-Share - is a biblically based, non-insurance healthcare solution that brings Christians together to share the cost of their medical care needs. Under the Medi-Share program, the Ministry began direct member-to-member sharing of medical care needs through individual member-owned bank accounts in December These individual member-owned bank accounts are held by America s Christian Credit Union (ACCU). The Ministry has limited power of attorney access to these ACCU Bank accounts in order to facilitate sharing of medical care needs among Medi-Share members. The Ministry sends members a monthly notice advising them of their share and administrative fee which includes program fees for services such as: medical bill review, bill adjudication, member assistance programs, and rate negotiation for medical services. Manna - facilitates Christians supporting one another during times of lost income due to disability from sickness or injury. Restore - helps Christians reverse disease through a structured program which includes personalized telephone-based health coaching, educational materials, interactive websites, and web-based seminars. NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Member medical payments All funds used to pay medical care needs comes from the voluntary giving of Medi-Share members, not from the Ministry, and the Ministry does not pay, nor is it liable for, the payment of any medical care expenses. Program fees The Ministry s primary source of revenue is from administrative fees which are assessed to member accounts based on a portion of the member s monthly share payment. Revenue is recognized when earned. Extra Blessings Extra Blessings revenue includes late fees assessed to member accounts and contributions received by the Ministry which are used to provide assistance to members with medical needs which are not shared under the Medi-Share program. Restricted and unrestricted revenue and support Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished) in the reporting period in which the support is recognized. Cash and cash equivalents The Ministry considers investment instruments purchased or donated with original maturities of three months or less to be cash equivalents. Certificate of deposit The Ministry s certificate of deposit has an original maturity of six months and bears interest at 0.55% and 0.40% per annum as of June 30, 2017 and 2016, respectively. 4

7 NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and equipment Property and equipment are stated at cost, if purchased, or estimated fair value on the date of donation, if donated. The Ministry uses the straight-line method of depreciating property and equipment over the estimated useful lives of the related assets. Income taxes The Ministry is exempt from federal income tax as an organization described in Section 501(c)(3) of the Internal Revenue Code and from state income tax pursuant to Florida law. The Ministry is further classified as a public charity and not a private foundation for federal tax purposes. The Ministry has not incurred unrelated business income taxes. As a result, no income tax provision or liability has been provided for in the accompanying financial statements. The Ministry has not taken any material uncertain tax positions for which the associated tax benefits may not be recognized under accounting principles generally accepted in the United States of America ( GAAP ). Use of estimates Management uses estimates and assumptions in preparing the financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Actual results could differ from the estimates. Reclassifications Certain amounts included in the June 30, 2016 financial statements have been reclassified to conform to classifications adopted during the year ended June 30, The reclassifications had no material effect on the accompanying financial statements. NOTE C CONCENTRATIONS The Ministry maintains its cash and cash equivalents and certificate of deposit in deposit accounts which may not be federally insured, may exceed federally insured limits, or may be insured by an entity other than an agency of the federal government. The Ministry has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to its cash and cash equivalents and certificate of deposit. The Ministry s investments are held by a single custodian. NOTE D INVESTMENTS Investments consisted of the following at June 30, 2017: Class 1 notes $ 5,633,095 Secured note 5,068,487 Variable note 10,183 Total investments $ 10,711,765 As of June 30, 2017, each of the Ministry s investment notes originated from debt instruments issued by a regulated investment company or its affiliates ( the Company ) which provides funds for real property secured loans and unsecured loans for the benefit of evangelical churches and church organizations. The notes function in a manner similar to certificates of deposit. Specifically, the Class 1 notes have original maturities of 24 to 60 months and bear interest at 3.78% to 4.45% per annum. The Class 1 notes are unsecured and cannot be liquidated before maturity without the consent of the Company which may grant a written request due to hardship and may deduct an administrative charge up to three months of interest. 5

8 NOTE D INVESTMENTS (Continued) The Ministry s secured note has an original maturity of 54 months and bears interest at 4% per annum. The note is secured by certain assets of the Company and cannot be liquidated before maturity without the consent of the Company which may grant a written request due to hardship and may deduct an administrative charge up to six months of interest. NOTE E FAIR VALUE MEASUREMENTS GAAP defines fair value for an investment generally as the price an organization would receive upon selling the investment in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. The information available to measure fair value varies depending on the nature of each investment and its market or markets. Accordingly, GAAP recognizes a hierarchy of inputs an organization may use in determining or estimating fair value. The inputs are categorized into levels that relate to the extent to which an input is objectively observable and the extent to which markets exist for identical or comparable investments. In determining or estimating fair value, an organization is required to maximize the use of observable market data (to the extent available) and minimize the use of unobservable inputs. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Following is a description of each of the three levels of input within the fair value hierarchy: Level 1 unadjusted quoted market prices in active markets for identical items Level 2 other significant observable inputs (such as quoted prices for similar items) Level 3 significant unobservable inputs The estimated fair value of certain assets measured on a recurring basis at June 30, 2017, is as follows: Total Level 1 Level 2 Level 3 Class 1 notes $ 5,633,095 $ $ $ 5,633,095 Secured note 5,068,487 5,068,487 Variable note 10,183 10,183 Total $ 10,711,765 $ $ $ 10,711,765 The estimated fair value of certain liabilities measured on a recurring basis at June 30, 2016, is as follows: Total Level 1 Level 2 Level 3 Interest rate swap contract, at estimated fair value $ (460,800) $ $ (460,800) $ Financial liabilities with estimated values determined using Level 2 inputs are based on amounts provided by a certain financial institution. Investments valued using Level 3 inputs consist of debt instruments issued by the Company as further described in Note D. The estimated fair value of the notes are based on amounts provided by the Company. 6

9 NOTE E FAIR VALUE MEASUREMENTS (Continued) The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value: Balance, July 1, 2016 $ Net purchases 10,711,765 Balance, June 30, 2017 $ 10,711,765 NOTE F PROPERTY AND EQUIPMENT Property and equipment consisted of the following: June 30, Category Land $ 735,438 $ 735,438 Buildings and improvements 7,626,238 6,822,114 Furniture and fixtures 1,555,619 1,119,352 Computer equipment 3,860,988 3,166,542 Capitalized software development costs 150,633 Total property and equipment 13,928,916 11,843,446 Less: Accumulated depreciation (3,984,531) (3,258,102) Net property and equipment $ 9,944,385 $ 8,585,344 Depreciation expense was $752,459 and $423,679 for the years ended June 30, 2017 and 2016, respectively. NOTE G NOTE PAYABLE During a prior year, the Ministry entered into an amended and restated promissory note with a bank with an original outstanding balance of $3,539,736 to fund the construction of the Ministry s headquarters location in Melbourne, Florida. The promissory note contained certain covenants, the most restrictive of which required that the Ministry maintain a certain fixed charge coverage ratio (calculated on June 30th of each year). Interest on the promissory note was payable monthly at the one-month LIBOR plus 2.30% per annum (2.95% per annum as of June 30, 2016), with payments of principal due monthly according to a fifteen-year amortization schedule. The promissory note was secured by a mortgage on the Ministry s headquarters location, and the Ministry s obligation to repay the promissory note was guaranteed by a certain third party in an amount up to the lesser of 47.87% of the unpaid principal balance or $2,250,000. The guaranty was to expire upon the earlier of payment by the guarantor of any amount of the guaranty, payment in full by the Ministry or guarantor of all obligations due on the note, or January In addition, the Ministry had entered into an interest rate swap agreement with a certain institution which fixed the interest rate on the loan balance at 5.70% per annum (see Note H). During the year ended June 30, 2017, the Ministry paid the balance of the promissory note in full and settled the interest rate swap contract. Interest expense was approximately $11,000 and $179,000 for the years ended June 30, 2017 and 2016, respectively. 7

10 NOTE H INTEREST RATE SWAP CONTRACT The Ministry entered into an interest rate swap contract with a financial institution to reduce the impact of changes in the variable rate of its long-term debt. The interest rate swap contract was to mature in January The contract effectively fixed the Ministry s annual interest rate exposure on a notional amount totaling $3,318,136 as of June 30, 2016, to 5.70% per annum. The estimated fair value of the interest rate swap contract was a liability of $460,800 as of June 30, The liability is reported as interest rate swap contract, at estimated fair value in the accompanying statement of financial position. The change in the estimated fair value of the interest rate swap contract is included in the accompanying statements of activities as change in estimated fair value of interest rate swap contract. The value was estimated based on the amount needed to settle the agreement as calculated by the counterparty to the swap agreement. Such calculation was based on market conditions, including prevailing interest rates, and took into consideration expectations regarding interest rate movements, the remaining term of the agreement, and other factors. During the year ended June 30, 2017, the Ministry settled the interest rate swap contract. NOTE I 401(k) PLAN The Ministry contributes to a 401(k) plan ( the Plan ) for the benefit of its employees. All employees who are at least eighteen years of age and have six months of service are eligible to participate in the Plan. Participating employees may elect to make salary deferral contributions to the Plan. The Plan requires the Ministry to make matching contributions of up to 3% of an employee s annual compensation up to a maximum of 5% (increasing by 50% of salary deferrals between 3% and 5% of an employee s annual compensation). The Ministry s contributions to the Plan were approximately $683,000 and $544,000 for the years ended June 30, 2017 and 2016, respectively. NOTE J ADVERTISING COSTS The Ministry uses advertising to promote its programs among its members and others. Advertising costs are expensed as incurred. During the years ended June 30, 2017 and 2016, the Ministry incurred total advertising costs of approximately $6,803,000 and $5,366,000, respectively. Such amounts are included in program activities expenses in the accompanying statements of activities. NOTE K RELATED PARTY TRANSACTIONS During the years ended June 30, 2017 and 2016, the Ministry made payments totaling approximately $522,000 and $383,000, respectively, to members of the Board of Directors for board meeting stipends, travel-related expenditures, consulting services, and executive leadership services. NOTE L ALLIANCE FOR HEALTH CARE SHARING MINISTRIES In July 2007, the Ministry and Samaritan Ministries International, of Peoria, Illinois, formed the Alliance of Health Care Sharing Ministries, Inc. ( the Alliance ). During the year ended June 30, 2017, Christian Healthcare Ministries was added as a charter member. The Alliance is a Florida not-for-profit corporation and is classified as a 501(c)(6) organization under the Internal Revenue Code. The Alliance s management and board are composed of employees of each member ministry in equal representation. The purpose of the Alliance is to serve the common interests of faith-based ministries which facilitate the sharing of health care needs (financial, emotional, and spiritual) by individuals and families. The Alliance is committed to advocacy in the public policy arena on issues of importance to health care sharing ministries. During the years ended June 30, 2017 and 2016, the Ministry contributed approximately $445,000 and $221,000, respectively, to the Alliance. 8

11 NOTE M - COMMITMENT During the year ended June 30, 2017, the Ministry entered into an agreement ( the agreement ) with a certain insurance brokerage firm ( the firm ) for the promotion of the Ministry s programs. Pursuant to the terms of the agreement, the firm will be paid a commission for each new member household that enrolls in certain programs offered by the Ministry. The agreement stipulates that the commission will be based on the program share, as defined in the agreement. The agreement expires in July 2019, unless terminated earlier by one of the parties subject to the terms of the agreement, and automatically renews in successive two year-terms. Should the agreement be terminated, the Ministry is obligated to continue to pay the firm according to the monthly commission schedule. During the year ended June 30, 2017, the Ministry made payments to the firm totaling approximately $2,045,000 in connection with this agreement. NOTE N SUBSEQUENT EVENTS Subsequent to June 30, 2017, the Ministry formed CCM Holdings of Melbourne, LLC ( the LLC ), a Florida single-member limited liability company, for the purpose of owning certain property. Subsequent to June 30, 2017, the LLC purchased certain land for approximately $1,950,000. The Ministry has evaluated for possible financial statement reporting and disclosure subsequent events through October 23, 2017, the date as of which the financial statements were available to be issued. 9